ANATOMY OF A GREASED BID
Months before a lucrative state contract was offered for public bid, Governor Fife Symington and former top aide George Leckie conspired with an official from the governor's personal accounting firm, Coopers & Lybrand, to steer millions of dollars of work to the firm, an internal Coopers & Lybrand memo obtained by New Times reveals.
Coopers & Lybrand landed a $3.1 million state contract on July 10, 1992, six months after Symington and Leckie held a series of meetings with Coopers & Lybrand partner Henry J. Schultzel. During those meetings, deals were struck that later benefited the governor politically and Coopers & Lybrand financially.
The contract in question was one of two that Coopers & Lybrand won in connection with Project SLIM, the governor's controversial cost-cutting initiative. The first contract, for $1.5 million, was to develop recommendations for streamlining state government. The second contract, worth twice as much as the first, was for actual implementation of the recommendations.
The second contract was not envisioned when Project SLIM was conceived. As originally planned, state employees were to implement the contractor's cost-saving recommendations.
But Coopers & Lybrand and Symington and Leckie would not only conclude that an outside consultant must do the implementation work, they would work earnestly to see that Coopers & Lybrand would get the contract.
The September 1991 awarding of the first, $1.5 million Project SLIM contract is already notorious. It triggered a criminal probe by Maricopa County Attorney Rick Romley, who found no wrongdoing, and an ongoing civil investigation by Attorney General Grant Woods.
In contrast, the awarding of the second major Project SLIM contract to Coopers & Lybrand has attracted little scrutiny, even though it was worth twice as much.
State records and internal Coopers & Lybrand memorandums obtained by New Times indicate that Symington, Leckie and Schultzel discussed ways to ensure that Coopers & Lybrand would implement Project SLIM. They mulled "good faith" actions the state and Coopers & Lybrand would take.
For example, Symington and Leckie asked that Coopers & Lybrand begin implementing some of its cost-cutting recommendations at one state agency before the end of fiscal 1991-92, even though the firm was not under contract to do so and was not supposed to be immediately paid.
Symington, however, needed something tangible to show a skeptical legislature that was balking at Project SLIM spending. A jump-start implementation of the cost-cutting recommendations would prime the pump.
Symington and Leckie asked Coopers & Lybrand to do the work "on the come" with the "understanding" that payment for the implementation work would be made the following fiscal year--even though no money had yet been appropriated.
Coopers & Lybrand agreed to the request, and as a result established a sizable head start in the race for the implementation contract. Indeed, at that point, other potential bidders were not even aware there was a race.
These discussions and others are outlined in a three-page memo prepared by Schultzel, who was overseeing the firm's first Project SLIM contract. New Times found the memo among more than 10,000 pages of documents collected during Romley's probe.
In the memo--dated January 10, 1992, and directed to his superiors in San Francisco--Schultzel waxed optimistic, assuring his bosses that Coopers & Lybrand was in the driver's seat to win the newly conceived implementation work. He assured his bosses that Symington and Leckie could deliver on their promises, and urged the firm to agree to begin early implementation work at one state agency with the pledge of payment in the future.
"Based on the fact that the project is large, the client is good for the money and the Governor is also a private client of the Firm, I think the risk is minimal," Schultzel wrote.
Schultzel's memo also gloats over the removal of foes from decision-making posts within Project SLIM. "We have finally defused all attempts by those people to interfere in the project by having them removed from the project," Schultzel wrote.
Symington has long-standing ties to Coopers & Lybrand. The firm has handled his personal accounting since at least 1985, and kept the books for the Symington Company, the development company that succumbed to bad real estate investments. Coopers & Lybrand also played a major role in Symington's election campaigns. Partner John Yoeman was Symington's 1990 campaign treasurer, which brought Yoeman into regular contact with Leckie, Symington's campaign finance chairman.
It isn't known whether Symington or his development company was indebted to Coopers & Lybrand at the time the accounting firm landed the Project SLIM contracts, although the governor's personal financial disclosure statements filed with the state show no personal debt.
The Governor's Office refuses to return New Times' phone calls. Coopers & Lybrand spokesman David Nester declined to discuss the memo. Leckie also declined to comment on the Project SLIM contracts, but he called Schultzel's memo "very interesting" and "substantive."
Symington considers Project SLIM to be a centerpiece in his administration. He has touted the cost-cutting program based on "total quality management" as "revolutionary" for state government. Project SLIM's efficacy, however, is debatable. (See chart on page 6.)
Last year, allegations surfaced that Leckie improperly funneled inside information to Coopers & Lybrand during the final bidding for the initial Project SLIM contract.
To quell the furor, Symington asked Romley to conduct a criminal investigation to determine whether the contract was rigged. Romley and three other county attorneys reviewed the case and determined three months later that there was no evidence that Leckie, who was on the state panel reviewing the Project SLIM bids, passed confidential information during telephone calls with Yoeman.
Coopers & Lybrand, which had the highest of five bids going into the final round, abruptly lowered its offer by $440,000 to win the first Project SLIM contract. The sudden bid reduction stunned state officials reviewing the proposals.
While Romley's investigation determined that several phone calls were placed between the offices and homes of Leckie and Yoeman prior to the bid lowering, it proved impossible to determine if the men actually talked or what they talked about.
"We have no way of knowing what the two men discussed," says Barnett Lotstein, Romley's special assistant, who directed the probe.
The criminal investigation into irregularities involving Symington's favorite accounting firm, Coopers & Lybrand, and the governor's top program, Project SLIM, ended.
It shouldn't have.
Symington's original plan for Project SLIM called for a consultant to review all facets of state government operations and develop recommendations to streamline and save money.
As envisioned, the consultant was to bow out after the recommendations had been developed, according to former Project SLIM steering committee chairman A.J. Pfister. Phase two of the project, implementing the recommendations, was to be left primarily to state employees, Pfister says.
But Symington changed the plan in late 1991, deciding that state employees were incapable of making the tough decisions needed to cut costs. Instead, a private consultant would be needed. Those decisions were not immediately shared with Project SLIM steering committee members.
Schultzel takes credit for swaying Symington. His January 10, 1992, memo says that during a "meeting with the Governor and a group of his cabinet we convinced them that we should do the implementation as the state people were incapable of doing the implementation without assistance." That assistance, Schultzel argued, would best be delivered by Coopers & Lybrand.
In a subsequent meeting, Schultzel's memo says, Leckie "reconfirmed this understanding and personally changed the budget for the next year to include approximately $6.8 million in fees for us for implementation."
With the implementation work in Coopers & Lybrand's bag, the wheeling and dealing escalated.
Schultzel's memo states that Symington and Leckie "asked that we begin implementation on one of the agencies in good faith 'on the come' with the understanding that we would be paid in the next fiscal year."
But before Coopers & Lybrand was willing to agree to the proposal, it wanted some additional "good faith" actions from Symington and Leckie.
First, Coopers & Lybrand wanted the state to approve a $437,000 change order it was about to submit on the first $1.5 million Project SLIM contract. The change order would nearly compensate for the 11th-hour, $440,000 reduction in the firm's bid four months earlier. The company said the additional funds were justified because the state underestimated by 9,000 the number of employees that Coopers & Lybrand would have to review.
Second, the contractor wanted the state to begin paying for its Project SLIM work even though the first contract stipulated that nothing would be paid until after the work was completed on July 1, 1992.
"I told them that we had committed significantly in good faith already and that the state needed to show some good faith by approving the change order and paying some of our fees before we could entertain another good faith action," Schultzel says in his memo.
Schultzel's memo states that Symington and his staff had agreed to these terms and were "solidly with us and mean to be our partner in this endeavor."
The Governor's Office immediately went to work to deliver what it had promised to Coopers & Lybrand.
There was no doubt who was making the spending decisions on Project SLIM: Symington had assumed direct responsibility for appropriations, even though the legislature had awarded Project SLIM money to the Office of Strategic Planning and Budgeting as a special line item.
"The SLIM program will be run from the Governor's Office and budgetary and expenditure decisions will be made here," former Symington aide Elliot Hibbs wrote to OSPB director Peter J. Burns on September 20, 1991, a week after the $1.5 million contract was awarded to Coopers & Lybrand.
"This relief of budgetary responsibility and accountability reflects the Governor's desires as to how the appropriation should be controlled," Hibbs wrote in a memo that New Times obtained after a four-month legal struggle with the Governor's Office to review public documents.
The "good faith" measures discussed by Symington, Leckie and Schultzel began tumbling like dominoes in mid-January 1992. State records show Coopers & Lybrand formally submitted its $437,000 change order request on January 15, 1992, five days after Schultzel sent his memo to San Francisco.
Schultzel's memo indicates that Leckie had already approved the change order and had instructed state personnel to begin processing payment two weeks before Coopers & Lybrand formally submitted its request for more money.
Once Coopers & Lybrand filed its change order request, Leckie began rounding up additional support. Rather than seeking advice on the change order from the attorney general, whose office was supposed to be counsel on Project SLIM, Leckie sought a legal opinion from the private law firm of Squire, Sanders & Dempsey. On January 24, 1992, the firm issued a four-page opinion that concluded the "amount of relief sought by the request [change order] does not seem unreasonable."
But the change order set off a firestorm within the 15-member Project SLIM steering committee, which was headed by former Salt River Project general manager A.J. Pfister.
Pfister tells New Times he became suspicious of the Leckie/Coopers & Lybrand relationship after the firm suddenly lowered its bid by $440,000 in September 1991. Now, four months into the project, Coopers was seeking to recoup nearly all of that sum with the $437,000 change order.
At about the same time the change order surfaced, Pfister also became aware that Leckie was steadily assuming more control over the direction of Project SLIM. Leckie wanted the role of private consultants expanded.
This was a fundamental shift in Project SLIM's direction, says Pfister, who adamantly opposed the use of outside consultants.
"My own view was that the state directors ought to be implementing," Pfister says. "I think that George Leckie--and others in the Governor's Office, as well--felt the consultant should be very much involved in the implementation."
A power struggle ensued, and Pfister lost. He submitted his resignation on January 29, 1992, writing to Symington, "I have been concerned that the recent actions concerning the SLIM Project represent a significant departure from the concept developed when you recruited me to act as chairman of the SLIM Commission."
Pfister's resignation was ill-timed for the Governor's Office. It came one day after it was announced that Leckie, whose title at the Governor's Office was chief operating officer, had overspent the gubernatorial budget by more than $250,000. Leckie was removed from the Governor's Office and placed in charge of Project SLIM.
Support for Coopers & Lybrand's $437,000 change order withered in the face of political uproar over the budget mess at the Governor's Office and Leckie's new role at Project SLIM.
Coopers & Lybrand, however, continued requesting the money from the state procurement office, records show. Documents compiled during Romley's investigation indicate that Leckie eventually withdrew his support for the change order.
Nevertheless, the Governor's Office continued to make good on the two other promises it had made to Coopers & Lybrand--steering future SLIM implementation work to the firm and initiating early payment for work under the first SLIM contract.
On February 6, 1992, the state procurement office approved monthly payments to Coopers & Lybrand for fees that ranged up to $275 per hour and expenses such as medical treatment at a California clinic for one Coopers & Lybrand employee. In the next five months, the state paid Coopers & Lybrand $845,285 before it completed the work required under the first SLIM contract.
Leckie also continued pushing the idea of using outside consultants to implement the project. In a March 27, 1992, memo, Leckie discussed the future of Project SLIM and listed reasons outside consultants should be used. One stated reason: "State employees don't have the time."
Symington, meanwhile, was preparing a speech on Project SLIM and the future of state government. "This will be the most important speech of my governorship," Symington wrote in a March 24, 1992, letter to a friend he had asked to review the speech.
In the speech, Symington underscored the importance of implementing the project's recommendations. "Implementation is one of the ways we will distinguish Project SLIM from other failed efforts to streamline state government," he declared.
About the same time, the Governor's Office and Project SLIM officials began executing a plan to steer the implementation work to Coopers & Lybrand. This was to be done quietly by simply amending the firm's first SLIM contract. The proposed amendment would award the firm an additional $3 million for implementation in fiscal 1993.
Amending the original $1.5 million contract would allow the Governor's Office to bypass public bids for the implementation work. But that was clearly illegal, and the Attorney General's Office shot it down on April 1, 1992.
Assistant attorney general Graham Alex Turner said the amendment was illegal because it greatly increased the value of the first contract and changed its scope. "On the basis of dollar value alone, such an amendment would be viewed as an impermissible . . . change," Turner wrote.
After blocking the amendment, the Attorney General's Office on April 17, 1992, formally withdrew from Project SLIM. The office cited budget cuts and observed that Project SLIM "rarely called" for the attorney general's assistance.
(Officials at the Attorney General's Office declined to discuss Project SLIM, other than to say the investigation continues into possible civil violations in the first SLIM contract award.)
With the amendment option dead, the Governor's Office asked the state procurement office to issue a public call for bids to implement Project SLIM. The procurement office issued a May 5, 1992, notice for public bids. Eighteen companies, including Coopers & Lybrand, responded.
Prior to submitting its implementation bid, Coopers & Lybrand made good on its "good faith" promise to implement SLIM recommendations early at one state agency.
Coopers & Lybrand, however, didn't do the work "on the come," as suggested by Symington and Leckie.
Instead, the company was paid by the state Department of Transportation to teach "total quality management" techniques to a handful of ADOT employees as part of the agency's effort to implement Project SLIM recommendations.
As with the original Project SLIM contract, Coopers & Lybrand sneaked in at the last minute to secure the SLIM implementation contract at ADOT.
ADOT's top choice to teach TQM programs was the accounting firm Ernst & Young, with Coopers & Lybrand listed as a standby provider. Ernst taught nearly every TQM course in the department, earning $586,000 in 1992-93.
But Coopers & Lybrand got its foot in the door on April 14, 1992, when ADOT granted an amendment to the firm's December 1991 standby teaching contract. The amendment allowed payment of up to $179,376 for Coopers & Lybrand to "participate in ADOT's Total Quality Management Program through assisting ADOT personnel to implement" SLIM.
The contract called for Coopers to be paid $103,776 in the first six months and an additional $75,600 the next year--"assuming" Coopers won the "umbrella contract with Project SLIM." ADOT records show Coopers did only nominal work under the contract amendment and was paid $80,960.
The ADOT contract amendment proved to be worth far more than dollars to Coopers & Lybrand. A month after obtaining the ADOT amendment, Coopers & Lybrand used it as leverage in its bid to secure the statewide Project SLIM implementation contract.
"This [ADOT work] is one reason we believe it is in the best interests of the State of Arizona to select Coopers & Lybrand so that a continuity of implementation methodology can be maintained in all agencies," Coopers & Lybrand wrote in its bid for the SLIM implementation contract.
While the bids were being accepted and reviewed by the procurement office, Symington launched a full-court press to convince the legislature to fully fund implementation of Project SLIM.
The House of Representatives, under speaker Jane Hull, quickly backed the governor, although records indicate there was some concern among GOP legislators about the need for millions of dollars for consultants.
The state Senate was far less cooperative, offering only $1.5 million for the approaching fiscal year.
As budget negotiations continued through May 1992, Coopers & Lybrand continued to ask the state for additional money related to the first, $1.5 million Project SLIM contract. The firm convinced the state procurement office to accept two amendments to the first contract, adding another $88,400 to the original $1.5 million contract. This was in addition to the ADOT contract, bringing the total extra payments to Coopers & Lybrand to $169,360.
By early June 1992, House and Senate negotiators were attempting to settle on a final budget. Symington made full funding of Project SLIM implementation--including more than $4 million for private consultants--a prerequisite to adjournment.
House and Senate negotiators finally agreed, and on July 1, 1992, Symington signed the fiscal 1993 budget, including $5.75 million for Project SLIM, $4.175 million of which was earmarked for consultants.
Nine days later, the state procurement office completed its formal round of interviews with the bidders for the Project SLIM implementation contract.
The five-member selection team that reviewed the applications included three workers from Project SLIM, which was directly under the control of the governor--David St. John, Sandy Williams and David May.
On July 10, 1992, the procurement committee awarded a $3.186 million Project SLIM implementation contract to Coopers & Lybrand.
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